Investment guru or scam: how to spot a fake one

Money from investments or money from you?

When I see the advertisements for Investing Courses and "How you can invest like Warren Buffett", I can't help but suspect the speakers make more money from you attending their courses than from their own investments. Fortunately, there is a very simple way to sniff out a scammer.

Using the Warren Buffett test

The legendary value investor Warren Buffett is regarded as the best investor in the world. During his time at Berkshire Hathaway, he managed an annual compounded rate of return of 22.3%.

When I see advertisements or even author's biography stating they made 25% or more in a year, I immediately raise my red flag. If someone is making more money than Warren Buffett, he will not even need to be selling courses to you!

So the simple litmus test is this: did the investor make a rate of return that is higher than Warren Buffett?

It is entirely possible that you make more than 22.3% in one year, but it doesn't mean you do it consistently. Most gurus tell you their performance for one year, but not the others.

This leads to another question. What about those seminars that beat the market but are lower than 22.3%? Surely, they would not be scammers? I call them the overpriced sellers of information.

Overpriced sellers of information

Why would you spend thousands of dollars learning something that is available freely in libraries or cheaply in the form of books? If I could get 10 books on any topic, it would cost me only less than $300, considering each book averages $30 (which is entirely possible with eBooks).

On the other hand, seminars giving the same information cost up to 10x more, costing around $3,000. Such seminars are overpriced, you can simply get the same information from books.

What makes you rich?

Education does. But not overpriced education. If you overpay for education, you will never be able to get a positive return on investment. That's why I'm always against such seminars.

Buy a book or two. Go to Google and search for "books to read for ...". The information in those seminars will probably be the same anyway.

Personally, I have read up to a point that my opinion stands that it is far better to focus on earning more money, spending less money, and thus having more money to invest, and then investing them into an index fund, as compared to spending more time to boost your returns to your small capital.

Read this short parable on investing.

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19 August 2016 at 09:53 delete

I only need a tickle, a nug, a hint, a direction and then hit "enlightenment". And this comes at right time and opportunity, cost very little. And we are on our independent road to success. What this mean is we ourselves need to CARRY it after, to make this works. Most people get addicted to the solution and never really moved.

19 August 2016 at 20:12 delete

Hi Cory,

You are so right. Such seminars end up becoming motivational speeches to them.